View From Down Under

Over the weekend I read of the final communiqué put out after the G20 summit in Pittsburgh. Amidst the high sounding intentions, there was this gem:

2. When we last gathered in April, we confronted the greatest challenge to the world economy in our generation.

5. It worked.

With many developed economies still struggling with increasing unemployment and contracting GDP, this may seem a bit bold. What would the data say?

In my opinion, Bernanke is right, the US recession is technically over, although unemployment is likely to continue to rise for a while longer. The stock market agrees, with the Dow up 26% in the last three months.

Most Asian countries have already returned to growth, led by China (who had one of the world’s biggest government stimulus programs). Growth in the Euro area is turning positive. Even the UK is starting to show signs of recovery.

The leaders of the G20 nations take the credit:

6. Our forceful response helped stop the dangerous, sharp decline in global activity and stabilize financial markets. Industrial output is now rising in nearly all our economies. International trade is starting to recover. Our financial institutions are raising needed capital, financial markets are showing a willingness to invest and lend, and confidence has improved.

All recessions eventually end, is it a bit presumptuous to say global government stimulus plans helped stop this one? Can they take the credit?

There is no doubt that the global government reaction to this downturn was much more decisive (in terms of both speed and volume) and coordinated than at any time in history. The programs begun by President Bush and continued by President Obama were historically quite amazing. And the US wasn’t alone. Every developed country introduced some kind of fiscal stimulus in late 2008 and early 2009, usually quite dramatic, that included monetary (interest rate reductions), fiscal (tax breaks, handouts), and financial (guaranteeing bank liabilities, assistance to financial institutions) stimulus. They literally pulled out all the stops.

The data seems to suggest that in fact, it has worked. Government stimulus packages probably saved between 7 and 11 million jobs in the G20 countries. In Australia, retail sales jumped in months where government payments were flowing, then reduced again when the payments stopped – pretty strong evidence for the effectiveness of stimulus. Cash for clunkers was a tremendous boost to the auto industry.

Difficult to know how much of the recovery should be allocated to the financial measures, monetary policy, economic stimulus, or the normal course of time. Also difficult to allocate how much credit goes to Bush and how much to Obama.

But it does seem clear that the G20 governments are justified in their gloat. The coordinated governmental response to the downturn seems to quite clearly have made things better – or at least better than they would have been without the intervention.

Popularity: 42% [?]

Aside from a few pathetic protests? For those who may have missed it, the leaders of the G20 nations agreed, in mostly very general language, to continue to discuss and eventually agree on things like fighting protectionism, cleaner growth, tougher financial regulation, and so on.

But the most important outcome of the meeting was the agreement to replace the G8 with the G20. The G8 (or G7, or before that, G6) has been meeting periodically since 1975 to discuss coordinated response to global issues.

Why is this important? The G8 excludes China, India, Brazil, Indonesia, and other large, fast growing economies. Replacing the G8 with the G20 is seen in these countries as a major recognition of their place on the world stage, and is likely to have a significant impact on the willingness of these countries to cooperate on things like protectionism, climate change, and tax evasion.

The exclusion from these talks has been a major point of contention as these countries (particularly China) have felt left out of the world stage. Every time the G8 meet to decide the future of the world, it is seen as a snub, and in most of these countries face is important. Continued loss of face (or perceived loss of face) would likely have eventually manifested itself in non-cooperation or worse. Replacing the G8 with the G20 removes this pressure and increases the likelihood of real progress on things like protectionism, clean growth, and financial regulation.

Not surprisingly, this does not seem to have been picked up much in the US press, who focused more on the goal of increased bank regulation and then moved quickly on to Iran and the Pope’s spider. However in the press of the 12 new member countries, this is definitely front page stuff.

And yes, even Australia now has a seat at the expanded table.

Popularity: 9% [?]

Public Policy Polling released the results of their recent poll yesterday. Amidst the normal questions on approval ratings and health care, they asked four other questions which I found interesting.

Nearly a quarter of all respondents – and 42% of Republicans – do not believe Obama was born in the US. This despite the fact that the state of Hawaii has confirmed the original birth certificate (you can see photos of it here).

One in seven respondents – and one in four Democrats – believe Bush intentionally allowed the 9/11 attacks so that we would go to war in the Middle East. Although this can’t be disproven by producing a document, there is certainly no evidence to support it.

The poll also asked people if they thought George W. Bush is the Anti-Christ, and the same question about Barack Obama. On this one, I think the respondents were having a bit of fun. Surely 8-10% of Americans do not seriously believe that either of these men are the Anti-Christ. Do 10% of Americans even know what the Anti-Christ is? (Have to admit I’m a little shaky on that myself.)

But perhaps I shouldn’t be so naive about it. Apparently one in five Americans believe they have been reincarnated – in this case about the same percentage for both Republicans and Democrats.

Popularity: 7% [?]

A recent poll had some interesting data on the divisive nature of the health care debate. When about 1000 people were asked if they supported or opposed the health care proposal, results were pretty evenly split: 52% in favor, 48% opposed.

But when you throw party identification into the mix:

Talk about your stark contrast! 84% of democrats support, 88% of republicans oppose.

The poll then asked: Do you think the majority of the public favors or opposes health care reform? Before looking at the chart below, remember it’s pretty evenly split (52/48).

The democrats underestimate the amount of opposition, but the republicans really missed this one badly. 73% of them think the majority of Americans oppose reform. Makes you think the republicans are only listening to other republicans.

One final chart, without further comment. The question is: If Congress passes and the President signs a health care reform bill, do you think:

Popularity: 11% [?]

The Economist recently added a page called the Global Debt Comparison. I spent a bit of time playing there, and then downloaded the data.

Here is a chart of public debt by country, based on estimates for 2010, for the 20 largest economies. The horizontal axis is debt per capita, the vertical axis is debt as a percentage of GDP. Can you spot the United States?

In trying to pick the US from this lineup, my guess is you went to the top right. That outlier is Japan, whose debt is almost twice their annual GDP. The next one down is Italy (121% of GDP). At the far left you have India, whose public debt as a percentage of GDP is higher than the US, but because their per capita GDP is so much lower than the US, the per capita debt is also quite low.

The US is the one in red, 60% of GDP and $28,693 per person.

Not to say that deficits don’t matter, but it does put it into a bit of perspective.
(H/T Freakonomics)

Popularity: 7% [?]

Politics and political discourse in the US has polarized over the last 30 years, with both politicians and voters moving further from the center.  The cause may be geographic self selection, or changes to the legal framework.  Or it may be more complicated.

Other forces that have been accused of complicity in this polarisation include income inequality, increasing immigration (particularly illegal immigration), growth of fundamentalist religion, imbecilic left wing radicals, fascist right wing radicals, increasingly effective protest strategies, and etc.

Whatever the causes, the result is not disputed.  Analysis of voting patterns in Congress shows quite a clear move away from consensus and towards increasing divergence.  Polls such as those on health care reform show an increasing split among American voters.

So, is this a good thing or a bad thing?

Polarization has the effect of stifling reform.  If the members of Congress are polarized in opinion and politically unable to compromise (by compromising they risk losing their seat), meaningful reform grinds to something close to a halt.  Whether this is a good or bad thing depends on whether you support the particular reform in question.  Polarization limited the cuts on capital gains and death taxes proposed by the Bush administration, and is now limiting the ability of the Obama administration to implement health care reform.

Being a fan of progress, I think this is a bad thing.

Polarization has certainly made politics more interesting.  Elections tend to mean more than they used to, candidates are more clearly different from each other, and television and radio coverage of politics is far more entertaining.  Rush Limbaugh would not be worth listening to if he had moderate views, and would certainly be a far less wealthy man today.

However, entertainment always comes at a cost.  Trying to filter out what actually happened from what the talking heads are saying is becoming more and more difficult.  And I find the continuous search for outrage by the political commentators to be tiresome and, frankly, childish.

To me the worst thing about this trend is the lack of sense it makes.  Taking extreme left or right wing views almost always involves ignoring facts and letting ideology or emotion govern reaction.  Wouldn’t it be a better place if we looked at proposals on their merits, instead of the knee jerk reaction of labelling things socialist or racist because they came from the other side of the aisle?

Of course, that is a pipe dream in the US today.

Popularity: 14% [?]

Stephen Gottlieb of the Albany Law School recently published a paper describing the polarization of politics in terms of legal and regulatory changes over the last 25 years.  He focused on two areas: media and candidate selection.

In the days of Walter Cronkite, there were three national networks operating under a fairness doctrine which required the networks to show both sides of a political argument.  Because that was both controversial and kind of boring, network news and commentary was designed not to offend.  The focus was on “that’s the way it is”, and no further.  As the media framework shifted to allow more networks, the upstarts found they needed to differentiate themselves.  The mainstream networks ultimately found that trying to please everyone ended up pleasing no one – and losing ratings in the process.  In the chase for advertising dollars, news became more political, reporting changed to analysis, and analysis descended into name calling and face pulling.

At the same time, the candidate selection process shifted solidly towards primaries.  This move, coupled with increased gerrymandering of safe seats and changes to campaign finance laws, ended up with each party putting up candidates that were more and more removed from the center.

So the question that raises to me is: Do you watch or listen to programs you may disagree with?  Any liberals out there spend any time listening to Limbaugh or watching O’Reilly?  Any conservatives spend time on the Huffington Post? 

A couple of other questions:  Does anyone get excited about a moderate candidate?  Do you trust any television or radio host as much as you trusted Walter Cronkite?

Popularity: 9% [?]

I am a fan of progress.  Most of the time, change is good, normal, and healthy.   However the trend in the US towards increasingly polarised politics and opinion is, in my view, none of those things.

Apart from a brief period after September 11, 2001, Americans have been inexorably moving away from the center and from each other – both figuratively and literally – since the Carter administration. 

As much as the trend is discouraging, some of the reasons for this shift are actually quite interesting. 

A recent article in the Economist magazine (subscription required) described the shift in physical terms.  As Americans move around, they are naturally drawn to areas that feel ‘comfortable’ to them.  Over the last 20 years, this has resulted in liberals tending to live where other liberals live, and conservatives likewise.  For example, if you work in Washington DC and are liberal, you tend to live in Maryland.  Conservatives working in DC tend to live in northern Virginia.  In Texas, Austin is a kind of liberal enclave, with some areas of the city resembling Berkeley.  Move a little north or south of Austin, and you are in solid red state territory.  One result of this physical split is that increasingly conservatives only interact with other conservatives, and liberals the same.  There is less and less political discussion amongst friends who have different opinions.  And quite naturally, opinions on both sides tend to become both exaggerated and deep seated.

Which begs the question:  When was the last time you had a political conversation with someone who disagreed with you?  If it’s been a while, might be a good time to have a civil conversation with someone from the other side of the spectrum.

Popularity: 4% [?]

In reading a recent article in Time magazine about the rise of the ethical consumer, I came across the results of a recent poll commissioned by the magazine which asked:  “Are you willing to pay more in federal taxes to provide universal health-care coverage for all Americans?”

The result: 50% said yes, 46% said no, 5% don’t know/no answer (yes, it adds to 101%, but presumably that is a rounding error).  In my mind, this really illustrates the polarisation of opinion on this topic. 

So I thought I’d see if I could find some data on whether people are better off paying taxes for universal health care or not.

Health care is an extraordinarily complicated subject, which may be one of the things that makes it interesting.  There is no real ability to do controlled studies on health care systems.  Things like culture, climate, genetics, diet, and so forth, can make a big impact in health care outcomes regardless of the system of health care delivery, and these things can also change over time.

However, I did come across a fascinating bit of research by Adam Wagstaff at the World Bank.  He looked at a number of OECD countries that had moved from tax-funded to insurance funded systems, or vice versa, from 1960 to 2006.  The conclusions were quite clear.  “…(social health insurance) systems, on balance, have certain characteristics that make them more expensive than tax financed systems, do no better in terms of most health outcomes … may do worse in respect of outcomes that require strong population-level public health programs (such as breast cancer), and do worse in terms of encouraging informal labor markets and discouraging employment.”

I don’t believe most Americans truly understand the cost of their health care system.  The cost they pay in terms of higher unemployment and lower wages (since employers are required to pay higher health insurance premiums) as well as the direct cost of health insurance, out of pocket expenses, and of course, the taxes to pay for Medicare and Medicaid (estimated at 18% of the total federal budget in 2009).

Popularity: 11% [?]

It’s now springtime in the southern hemisphere and the flu season is winding down.  As the northern hemisphere flu season starts to kick into gear, a look at the experience down under may provide some visibility into what the US can expect this winter.  A fact not lost on the US government, who produced their own report on the topic. 

When the southern hemisphere flu season was starting up back in May, the forecasts were grim – including expectations of 6,000 to 10,000 swine flu deaths in Australia alone, football games and other large gatherings cancelled, even Parliament could be shut down (which might have had its own appeal).  

Now the season is nearly over, and swine flu has just not lived up to its billing.

South America seemed to have been particularly hard hit, and Brazil currently has the highest number of deaths from swine flu in the world.   This is likely to be a reflection of its relatively large population, rather than a particular statement about the virulence of the flu in Brazil or the quality of its health care system.  Other South American countries were also hit quite hard.

In Australia, 165 people have died of the swine flu so far, and there are about 300 still in hospital.  Virtually all of these deaths were people with chronic health conditions.  Pregnant women were also hit hard by the flu, and some of the most tragic stories from the season involve these otherwise healthy young women.  But for the most part, the symptoms of swine flu were quite mild.  We are told that many of us would have had it and not known.

Two things make this flu a bit different to most:  the rate it spreads, and the people it targets.  At one point, over 90% of flu cases presented in Melbourne were swine flu.  In Sydney, the number was over 80% at its peak.  The pressure on the hospitals was enormous, with some hospitals cancelling all elective surgeries in order to free up beds for swine flu victims.  And unlike other flu strains, most of the victims of swine flu were young.

However, to keep it in perspective, there are typically about 2500 deaths in Australia each year from influenza.  Ten years from now if you look at a graph of deaths per year from flu in Australia, the swine flu epidemic is unlikely to be noticed.

There is every reason to believe the swine flu experience in the northern hemisphere this winter will be similar – lots of infections, not many deaths.

The northerners are quite lucky in one respect.  An effective swine flu vaccine is expected to be ready in time for the season – a luxury us in the south did not have.

Popularity: 6% [?]